Prime Minister John Key has told iwi that the Government could yet agree to a Treaty of Waitangi clause in legislation on the partial sale of state assets.

He emphasised that his Government would not dilute its Treaty obligations and he was "very open-minded" about what will happen to the clause after consultation.

Speaking at his annual Waitangi breakfast yesterday, Mr Key said the Government believed a Treaty clause was needed for the companies in which minority stakes would be sold.

He said although the Government preferred a more specific clause, he would not rule out using a general Treaty clause, such as Section 9 of the State Owned Enterprises Act 1986.

"But, and I make this point, we remain very open-minded about what that final clause might look like. In the end, in the spirit of the Treaty we are going to engage in genuine dialogue and debate and we won't rule out any options being on the table after this consultation period."

He said the Government preferred a more specific clause to prevent ambiguity, not because it wanted to walk away from its Treaty obligations.

The issue of Section 9 - which binds the Crown to act in accordance with the principles of the Treaty - has dominated at Waitangi, with protesters and iwi leaders sending a strong message to National that they will not be happy it if did not also cover the mixed ownership model companies.

Those companies will be removed from the State Owned Enterprise Act and new legislation will be drafted.

Maori Party co-leader Pita Sharples has reiterated that the party will walk out on National if the situation cannot be resolved and the party yesterday called on iwi leaders to challenge the asset sales in court using Section 9.

Maori Party MP Te Ururoa Flavell said to push through the partial sales before Treaty claims had been settled could be in breach of Section 9 and should be tested.

Labour leader David Shearer said it was becoming increasingly untenable for the Maori Party to stay with the Government.

"It's a very difficult situation for them now - if the Treaty of Waitangi is fundamental to them I can't see how they can ask others to take action and still stay in a coalition with National."

Mana leader Hone Harawira said a Maori Party split from Government would be more effective than working from the inside.

"What will make National really uncomfortable is a parliamentary majority of one. It's not Maori or the Treaty, it's their majority. If that's reduced to one, then they're going to worry."